I'm sure you're not hearing it here first, that JPMorgan Chase (JPM) bought Bear Stearns for just $2 per share, or about $236 million. Bear Stearns was seemingly about to go bankrupt but it's stock price was still $30 on Friday, which was almost a 50% drop after it announced it basically had no money left to pay anyone anything. Can you imagine if you owned Bear Stearns a week ago and were out of town Friday and missed the news? You've lost just about everything you had in that stock.
But here's what I'm wondering: is this good for JPMorgan? JP Morgan is paying less for Bear Stearns as a company than Bear Stearns' headquarters building alone is worth, not to mention all the relationships and business that Bear Stearns has acquired in the last 100 or so years. It sounds like a steal. But JPMorgan is so unsure of what they have in Bear Stearns and its many debts that they got the Fed to guarantee a ton of backup should there be something even worse than they know about on the books. In short, they can't even believe they got this kind of a bargain, so they figure there must be something they're missing.
I own some JPMorgan stock. As bad as this Bear Stearns news is in general, in terms of how it will further shake confidence and ream the market as a whole, I as a JPM investor should be jumping for joy that the company I own a small piece off has pulled off this coup.
And yet I'm slightly afraid. And I think the fact that I'm on the winning side but am still afraid says an awful lot about the market we're in right now, and a lot about what the future holds, at least in the near term. It's gonna get even uglier.
UPDATE: Took a 12% gain on JPMorgan today and ran. Just bought the stock last week and couldn't resist that kind of return in such a short time, especially in this market.
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I also wonder how this will be for JPMorgan Chase. I know one person who’s a VP there in risk management who told me that the bank has been trying to limit its exposure to the subprime mess. Bear Stearns basically defines the subprime mess, so it’s a little surprising to me that Chase would buy out the failed investment firm. Most likely, they’ll lay off everyone they can, dump the unprofitable parts of the business, and keep whatever will make them some money.
For $2.00 a share, there has to be some value that Chase can extract from the deal. But it’s a sign of how desperate Bear was that they had to accept that little. Anything to avoid having to report numbers on Monday, I guess… if they were that bad, as remains to be seen.
Jason, did you know that “it’s” is a contraction for “it is”?
Here are examples of the correct usage:
The dog chewed its bone.
It’s raining today.
Hope this is helpful to you.
wouldn’t the turnaround purchase would hit you with a hefty capital gains tax?
Only time will tell? If it works out it is a good deal. If not, there will always be another deal.